Bortolomiol, S., Lurkin, V., and Bierlaire, M. (2020)

Optimal regulation of oligopolistic markets under discrete choice models of demand

*20th Swiss Transport Research Conference, , *

We propose a general framework to find optimal policies to regulate markets characterized by oligopolistic competition and in which consumers make a discrete choice among a finite set of alternatives. In our work, consumers are utility maximizers and are modelled according to random utility theory. Suppliers are modelled as profit maximizers, according to the traditional microeconomic treatment. Market competition is modelled as a noncooperative game, for which an epsilon-equilibrium solution is sought. Finally, the regulator can affect the behavior of all other agents, for instance by giving subsidies or imposing taxes. In transport markets, these interventions might target specific alternatives, to reduce externalities such as congestion or emissions, or specific segments of the population, to achieve social welfare objectives. We present a mixed integer optimization model which can find optimal regulatory policies subject to market equilibrium, supplier profit maximization and consumer utility maximization constraints. We include this model in an algorithmic approach that finds epsilon-equilibrium solutions for the market. Finally, we report some preliminary numerical experiments which show the applicability of our approach on a transportation case study.